Viewpoint | Is the nature of Bitcoin a consensus?

Foreword: What is the nature of money? Is it a social contract? Is it a consensus? This paper argues that the essence of money is the result of the rational choice of individual economic activities. Money itself is also a commodity, but it has higher marketability than other commodities, that is, it is more easily needed by others. This higher marketability leads to currency becoming a transaction in the economy. medium. In other words, money is essentially the spontaneous formation and emergence of individual economic activities, rather than the result of common consultations. For Bitcoin, is it inherently characterized by higher marketability? Leave it to everyone to discuss. The author of this article is Ben Kaufman, translated by the "HQ" of the "Blue Fox Notes" community.

Currency is probably the most discussed phenomenon in the economic literature. Its origin and nature have been extensively discussed by a large number of economists and political scientists in history. Throughout history, the mainstream view of the currency issue can be traced back to the writings of ancient thinkers such as Plato and Aristotle. The following citations are a good expression of their position:

Plato called the currency a "pass for exchange" (Republic, II. 371; see B. Jowett, trans. & ed. Plato's Dialogue, Oxford University Press, London, 1892, 3rd edition, p. 52 ). (Blue Fox Note: Plato has long regarded currency as a token, which is the same as the token used in today's blockchain.)

In a quotation with Aristotle, the currency originated in custom and law, not in nature (Ethica Nicomachea, v. 5, 1133A, 29-32). In his political opinion, he made a clearer statement. He said, "People agree to use something in each other's transactions…such as iron, silver, etc." and use this as his explanation of the origin of money (i. 9 1257a, 36–40).

Even today, the same concept of "money is the result of some social contract or legislation" is the most common. The idea that this concept has become popular now becomes: money is just a “collective illusion”, that is, all members of society believe that this is for the common good.

The logical conclusions drawn from the above hypothesis have derived the wrong view that “as long as it is collectively recognized by all, it can be money”, and “we as a society can not only, but should actively control the money flowing and its issued".

The rebuttal against this view was originally proposed by the Scottish economist John Law. He believes that the origin of money is not a social contract, but a characteristic of a particular commodity, especially about the characteristics of a metal currency. One of the most famous thinkers in this genre is Carl Menger, founder of the Austrian School of Economics. In his book Principles of Economics, he elaborated on the theory of the origin of money in the most precise way to date.

This article explores the nature of money from the perspective of economics, explains the origin of money, and exposes the paradox that money is a "collective illusion." We will discuss: the economic reasons behind the spontaneous formation of money as a result of personal rational behavior, and the characteristics that significantly influence the possibility of a commodity becoming a currency in the market.

In order to fully understand the currency, we will start with the necessary basic economic concepts and gradually make a comprehensive explanation of the nature of the currency based on these concepts.

Economics and economic behavior

Understanding the nature of money is actually an economic issue. Therefore, we must first understand what economics is, and then come up with appropriate methods to understand the problem.

Economics is the study of the laws of economic individuals. The phenomenon it studies arises from the budget-conscious activities of economic individuals and attempts to provide us with a framework for thinking to understand these phenomena. Economics believes that through economic behavior, every economic individual is purposefully and subjectively trying to maximize his or her own needs.

We define here: an economic act, or an economic act, refers to an objective act of an economic individual to improve his or her welfare and to satisfy his or her individual needs more thoroughly (directly or indirectly). .

Therefore, when we explore economic phenomena such as money, we should first study: what kind of economic behavior has led to its emergence in the history of human civilization.

The monetary phenomenon is inseparable from the general economic trading activities, and the monetary phenomenon is derived from this economic trading activity. The usefulness of money is mainly due to its use in trading. There is no doubt that there will never be money in an economy without a transaction (for example, an individual economy), so it is most appropriate to start with the economic phenomenon of trading.

Transaction as an economic act

Early economists made a wrong analysis of the transaction. Because they did not strictly study transactions as an economic activity. When Adam Smith wrote that the origin of the transaction might come from "the tendency of people to use trucks to transport goods, barter and exchange," he did not deal with the issue from an economic point of view, nor did he trade the deal. Think of it as a strict economic behavior.

Later economists found that the reason for trading was that economic individuals realized that they had the opportunity to improve their well-being and save money. The transaction allows them to exchange, under certain conditions, another entity that is inversely related to the value of the two goods, at the expense of lower value goods, and at the expense of higher value goods.

This understanding is crucial to the further development of economics, because any economic theory involving transactions must be based on this. (Blue Fox notes: In the big vernacular, the reason why the transaction exists is because each needs, there is a demand for each other's goods.)

What we can observe is that when people realize that there is a relationship between the goods they own and the needs, the transaction becomes the most rational economic behavior. If neither party believes that the transaction is in their best economic interest, then there is no doubt that the transaction will not be conducted (voluntarily).

Therefore, we can see that trading is a purely economic act, not a behavioral tendency, and it is carried out under the conditions that it can improve the well-being of those engaged in trading.

Commodities and commerce

Without discussing the origin of money, it is impossible to fully understand the currency. To do this, we need to start with the concept of commodities in economics.

The economic definition of the “commodity” I use here is a traditional definition used by German old-school economists in the 19th century. This definition is different from the term often used in everyday language, but it is the proper definition used in understanding the economic literature.

We define a commodity as an economic item held by the owner, not for the purpose of consuming it, but for trading it in business. For example, most of the shoes made by shoemakers are not prepared for themselves, but for trading to get something that is more useful to them, so the shoes made by the shoemaker are the goods for the shoemaker.

When a person has something that he considers to be a commodity, this means that he believes that he can use the commodity for other higher value rather than for consumption or use. That is to say, for him, he thinks that goods have a higher exchange-value", which is higher than "use-value". Therefore, when the shoemaker intends to sell shoes, we will It is considered a commodity, but after the transaction, the consumer is used to wear shoes, but is not considered a commodity.

The more progress the division of labor and the more developed the economy, we will see more and more such situations: producers only produce goods in order to obtain the exchange value of goods, and rarely or even do not consider the use value of goods (Blue Fox notes) : That is to say, it does not consider whether it is useful to the producers themselves.)

What we can even see is that as commodity trade develops, trading does not only occur between producers and consumers, but there is another type of trader, including those who want to buy goods, not for consumption. It is to gain value through subsequent transactions.

In fact, this is the model in which many entities operate in the modern economy, such as retailers, whose sole purpose is to trade goods with consumers (such as grocery stores), and speculators who try to predict the future price of goods. This is for trading.

The existence of a common phenomenon in which the production and trading of economic individuals have no value for them but they intend to trade is clearly the result of economic actions taken by individuals to better support themselves.

In practicing this kind of action, the individual expects that the commodity will have certain needs at some time in the future, and then carry out economic activities according to their subjective assumptions. This expectation brings about the common phenomenon of transactions and commerce that we observe in our daily lives.

Marketability of goods

The concept of saleability relates to the degree of economic sacrifice required to sell goods. Obviously, from the perspective of many of its characteristics and sources of demand, different commodities often require different levels of economic sacrifice to trade. The economic sacrifices required to sell goods may occur in the form of price discounts, but more commonly, as a cost of delaying sales, that is, the seller must wait for the transaction to occur.

For example, if a spectacle manufacturer comes to the market with glasses optimized for a particular degree of myopia, he will have difficulty finding a trading opportunity. Although it is likely that there are potential buyers who are willing to buy at an economical price, it is time to find the buyer. In addition, even if a buyer is found, he probably does not own any goods that are valuable to the glasses seller.

If we now assume that, for some reason, glasses sellers are in urgent need of selling glasses, then he is unlikely to find someone who is willing to accept "economical price" glasses, ie the price is comparable to the price that interested buyers are willing to pay. If we are not thinking about glasses sellers now, but a baker who brings bread to the market, it is clear that he will be in a more favorable position to find a trading opportunity for his goods at "economic price". .

The reason for the difference can be attributed to the fact that the market for glasses is much smaller, because only a few people need it. In other cases, the reasons for the differences in the saleability of goods are due to their supply, the cost of production of new units, the possibility of commodity splitting, the cost of transporting goods, and other factors. (Blue Fox notes: marketability is similar to product market demand.)

Origin of money

When economic individuals realize that they can get more trading opportunities when they offer higher marketable goods, they have to use goods not only as valuable goods, but also goods that can reduce economic costs, that is, Said that these goods have become easier to sell.

The more people realize the difference in the saleability of goods, the more they are willing to accept more trading opportunities. Trading more merchandise will enable them to achieve their ultimate goal: to get the goods that are useful to them, and to be less economical and difficult than the transaction without a middleman.

Let's go back to the example above, assuming that the glasses seller now realizes that the bread is more marketable than the glasses he offers, and the economic cost of finding trading opportunities is relatively small. Realizing this, if he had the opportunity to trade the bread at a price he thought was reasonable, even if the bread had no use for him, he would be willing to change the bread with glasses.

The reason is that he knows that if he goes to the market with bread instead of glasses, he has the opportunity (at an economic price) to get a trading opportunity for goods that he really uses. By accepting the exchange of glasses with bread, the glasses seller can reduce the economic cost of the entire transaction process, enabling him to obtain the goods he wants through a lower time/value economic sacrifice.

Obviously, in the absence of direct trading opportunities in economic prices, and the fact that such goods are more marketable than the goods they currently own, individuals are willing to accept such goods, which is the most rational choice. Such an act would increase the demand for more readily available goods in an economy, not the value of its use, but the need for its transaction value as a more readily marketable item. (Blue Fox Note: It means that because the bread has higher marketability, even if the optician does not have a need for bread, but because the bread is easier to exchange goods that are valuable to him than the glasses, he prefers to hold the bread instead of glasses.)

The increased demand for more marketable merchandise will further increase its marketability as more individuals will be willing to trade these merchandise. We can see how this process is self-enhancing, making more marketable items more marketable, and less becoming less saleable. (Blue Fox Note: The Matthew effect of merchandise marketability in the market.)

Therefore, the result of this process is not surprising, only a few or even just one commodity will maintain demand due to its marketability. At the end of this process, goods with a lot of demand, we call it "currency." This process can be called "monetization" of goods.

Therefore, the origin of money can be traced back to this characteristic: because a commodity has greater marketability, then attracts more demand and makes it a universal trading medium, and then we call it “currency”. (Blue Fox Notes: Which of the cryptocurrencies is the most marketable in today's cryptocurrencies? Is it an opportunity to evolve into a universal exchange medium?)

The theory described is consistent with all known currency examples in history. Cows, shells, glass beads, fur, copper, silver and gold are some of the most famous commodity currencies in history. We can see their characteristics: use value, severability, interchangeability, portability and durability are all features that make them more marketable than other products. Therefore, according to the economic conditions of certain economies in a particular period in history, they have gained further demand and become currencies.

Another factor in their emergence as a currency can be attributed to the overall economic situation and the type of society in which they are used. For example, cattle are a common commodity currency at all stages of nomadic social development because they are durable and easy to transport, and people have enough room to “storage” them. However, with the development of civilization, the more fixed tribes, and the emergence of cities, the applicability of cattle as a trading medium has greatly declined. At the same time, the saleability of precious metals began to increase rapidly until they eventually became the new currency standard.

Marketability of legal tender

There is a special kind of currency that seems to be inconsistent with the above theory, that is fiat money. However, what I want to say is that if we consider government legislation as a factor that has a certain impact on the economic situation, we can use the same theory to explain its emergence.

The fiat currency, as the name implies, is the currency that the government has set as the currency. Historically, the government has typically used another currency to convert it into legal tender, such as a suspension of redemption of a gold certificate. There are two measures of government intervention: 1) regulations that impose restrictions and barriers to the saleability of other commodities; 2) legislation requires government entities to accept fictitious currency as a currency, the value of which is determined by the government, and requires the fiat currency as the only tax that can be accepted. The currency paid.

If we use monetary theory, it is easy to understand the reasons for these two interventions. The former is the government's use of its monopoly on violence, artificially reducing the saleability of other commodities, otherwise the saleability of goods may be higher than the legal currency, and thus more likely to become a trading medium for circulation.

In the latter case, there is an artificial need for fiat money, both for taxation and for people to receive its “face value” – usually much higher than its market value. This increase the "artificial" demand for the government's legal currency, while artificially reducing the saleability of other commodities, and ultimately making the legal currency the most selling commodity, thus becoming the trading medium, that is, the currency.

Compared with other types of currencies, the peculiarity of legal currency is that the saleability of legal tender does not come from the free behavior of economic individuals, but from the coercion of legislation. However, we should point out that this operation still conforms to the theory of currency emergence, that is, the most marketable commodity becomes currency without having to reach a collective agreement on the substance of the currency.

There is a long history that even if the regulations are still valid (such as when hyperinflation), the fiat currency may lose its marketability. These cases reinforce the arguments presented here because it shows that even if a “political agreement” (legislation) still exists, fiat money may lose marketability due to changes in its characteristics (productivity under hyperinflation).

When this happens, we can see that another commodity with a non-statutory currency enters circulation, replacing the fiat currency as a trading medium, and the legal currency is squeezed out. Therefore, money is not imposed on people, but on their individual economic behavior.

Therefore, the legal currency is not always strong, both historically and theoretically. However, we need to understand its origins and why it is used in the economy, and we need to treat government intervention as a specific economic situation and understand its impact on currency.

Therefore, we conclude that the fiat currency does conform to Mengerian's theory of the origin of money. (Blue Fox notes: Mengerian means Mengerian, and Austrian believes that the origin of money is essentially social spontaneous and endogenous.)

The essence of money

Now let's start with the question, what is the nature of money? From the above discussion, we can conclude that the monetary phenomenon is a logical, spontaneous result of the efforts of economic individuals. It does not stem from collective decisions, but from the nature of maximizing the interests of economic individuals.

Throughout history, we have witnessed a variety of monetary phenomena, including not only in the absence of legislation, but sometimes even in the absence of existing legislation (hyperinflation), and there is no clear coordination between market participants. Therefore, money is not a social or political phenomenon, but an economic phenomenon of individual economic behavior.

To say that money is a "collective illusion" is only a superficial point of view and does not provide any economic explanation for the phenomenon of money. In the eyes of many people, the reason why this paradox is convincing is probably to confuse the use value and exchange value, as well as the misunderstanding of general commodity theory.

The explanation that people usually give is that people give money value not because of its use in consumption, but because they want others to exchange it with other useful goods in the future.

Obviously, in many cases, the value of money does not exist for many people, but they are still willing to trade in currency. Based on this observation, they concluded that accepting currency transactions must violate the individual's best self-interest, so currency transactions can only be derived from collective agreements.

This argument may sound convincing at first, but after we study the origin of the currency, we can easily refute it because we have proved that accepting money is indeed in the best self-interest of the economic individual.

It is clear that in an economy, the first people who realize the economic benefits of replacing goods with more marketable goods will have better and more opportunities to reduce economic costs. Therefore, they are better able to meet their own needs than others.

Over time, as the saleability of some goods increases, and the transfer of knowledge between people, more people will imitate this behavior, and the positive benefits of such behavior will also become more obvious. Therefore, some commodities will dominate the market as a trading medium before the currency fully enters the market.

As this process develops and some goods become more marketable, other goods will become more difficult to sell, and those who do not trade currencies will be punished by the economy – they will have fewer trading opportunities. And is increasingly being isolated in economic activity. The use of money in the economy is an economic activity that maximizes the self-interest of everyone, which negates the view that money appears as a "social contract" or "collective fantasy."

We can also know from this process that the choice of the essence of money is not arbitrary. Conversely, this choice is a predictable outcome of the effects of specific commodity characteristics and is also influenced by the current economic situation in the process of monetization of an economy.

So far, we have expounded the shortcomings of the "social contract" monetary theory. However, we can learn more about money and the economy.

We may have noticed that the same relationship described by this theory exists not only in money but also in the definition of all commodities, and this theory cannot be determined. For example, the amount of food produced by a farmer may far exceed his personal needs, and any single unit of food does not actually have any use value for him.

However, no one can say that the amount of food produced by farmers is unreasonable because they have expectations for future transactions. This relationship is the same as the currency we observe and all other commodities.

The particularity of money is that its demand is mainly due to its use as a trading medium, which often greatly reduces its need for use. However, this observation has nothing to do with the general relationship we discuss here. In terms of production and commodity trading, regardless of the source of demand, the transaction value is obvious.

The second major flaw I want to emphasize is that money is seen as a “collective illusion”. This interpretation is not of an economic nature. We may wish to reject such an explanation because it is too superficial for this reason alone. It is. The essence of economic science is to reveal the laws of economic individuals, that is, to understand the economic life phenomenon composed of individual purposeful economic behaviors.

Economics accepts basic behavioral transcendental reasoning, assuming that human behavior is purposeful. Therefore, any interpretation of economic behavior as an unexplained tendency, illusion, animal spirit, or any other excuse to escape reasoning is contrary to the premise of economics and thus unacceptable.

in conclusion

The essence of money is the result of individual economic activity, which thoroughly satisfies the needs of the individual. Money is a commodity. Compared with other commodities, the marketability of money is relatively high, so money can be circulated in the economy as a trading medium. The emergence of money is spontaneous, because economic individuals try to trade their goods into other goods, and they need to find a trading opportunity with less economic sacrifice.

Throughout the history of the currency, there has never been a situation in which people have come together to jointly decide to arbitrarily define an arbitrary object as a currency. The concept of "social contract" is completely different from the origin of money. The origin of money originates from the economic behavior of individuals and spreads through the market. The specific currency is not arbitrary, but is determined by the intrinsic nature of the commodity and the marketability under a particular economic situation.

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